Kenneth Rijock

Friday, May 20, 2016

HAS COUNTRY RISK FOR LEBANON NOW REACHED UNACCEPTABLE LEVELS ?

With Lebanese Bankers associations hastening to warn that the US Anti-Hezbollah financing law, now in force, is to be obeyed, notwithstanding that designated terrorist organization's domination of the country, Country Risk may now have finally reached the point of no return. In essence, the risk levels are now so high, that investments in Lebanon, and transaction with Beirut banks, represent an unacceptable level of danger.

Hezbollah, bloodied in Syria, and needing to still show the Arab street that it is relevant*, could initiate yet another conflict with Israel, which that country has bluntly warned will result in destruction of heretofore segments of the Lebanese economy that escaped damage in the last war, a decade ago. if the downtown Beirut business district is destroyed, so will be the Lebanese financial center. The anticipated loss of life could even exceed the nightmare of the Lebanese Civil War.

Would the Islamic State, or one of the radical Sunni Opposition groups fighting in Syria then threaten a weakened Lebanon ? We cannot say, but geography is not on the side of Lebanon, given the threats already posed by these insurgents, some of who have already fought with the country's small army in border towns. With Hezbollah engaged, Lebanon would be vulnerable.

Taking all this into account, the prudent move for any compliance officer, tasked with the calculation of Country Risk, will be to raise it so high on Lebanon, so as to deter any client investment, or extension of credit or other financial exposure.
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* The Shebaa Farms territorial dispute, which is a bogus Hezbollah claim, made ostensibly on behalf of Lebanon, to justify military action against Israel, has no basis in fact, as the territory was always on the Syrian side of the frontier; This is supported by French historical records. Hezbollah has always had a reckless disregard for the truth, when it serves its interests.